A Possible End to Deal-Making Between Pharma Companies and Generic Drug Makers

By: Suma Kallurkar, CIS Senior Compliance Manager
sumakallurkar@cis-partners.com

Patent protection is one of the most critical factors in a pharmaceutical company's financial success. Expiration of a patent for a key drug product, and the ensuing competition from generic products launched in the market, presents a tremendous challenge that pharma companies spend years preparing to overcome. Many pharma companies over the years have utilized the tactic of paying generic drug manufacturers to delay the launch of their generic products, in essence buying more time in which they retain exclusivity and allowing them to realize billions of dollars more in sales.

However, if the current Democratic administration gets its way, pharma companies may no longer be able to make such deals with generic drug makers to ward off the entry of competing generic products. The administration has been focusing on evaluating ways to reduce health care costs. It believes that bringing an end to such deals between pharma companies and generic drug makers would help save billions of dollars in costs, as generic drugs are often available for as little as a quarter of the cost of brand-name counterparts. Such savings would undoubtedly benefit consumers directly.

The Federal Trade Commission (FTC) has sought to fight such payments for the last several years by filing lawsuits against them, but these attempts have not fared well. In addition, similar legislation has been unsuccessful when raised in the recent past. The house has re-introduced a bill (originally introduced in the last Congress) to ban the above-described payments in patent litigation settlements between pharma companies manufacturing branded products and generic drug makers. A subcommittee hearing on the bill was held Tuesday, March 31. Proponents of the legislation hope to enact it into law this year with the support of President Obama, although it is not completely clear at this time whether or not Obama will indeed support it.

Currently, approximately 10 brand-name prescription drugs are protected by such agreements made with generic manufacturers. From the pharma perspective, eliminating the option to make deals with generic drug companies to delay the marketing of generic products will undoubtedly increase the challenges already faced from generic competition. A major concern is that reduced revenue based on entry of generics could hurt the ability to re-invest in research and innovation. However, from the health care and consumer perspective, the benefits of the significant cost savings cannot be understated, and could contribute greatly to a reduction in health care costs, thereby also benefitting economic growth. It remains to be seen whether this administration will be successful in eliminating such deals between pharma companies and generic drug makers.

Sources:
House of Representatives Committee on Energy and Commerce:
http://energycommerce.house.gov/Press_111/20090331/rush_open.pdf

Wall Street Journal:
http://online.wsj.com/article/SB123843757514670479.html